The Effects of Expansionary Fiscal Policy on Macroeconomic Development: A Study on Tax Competition in an Emerging Market
Main Article Content
Abstract
Objective: this article examines expansionary fiscal policy in the context of intergovernmental tax competition from a macroeconomic perspective, analyzing the effects of granting tax benefits under the state value-added tax on the circulation of goods and services (ICMS) on the economic development of Santa Catarina, a state in southern Brazil. Methods: monthly data spanning 1997–2020 were analyzed using a vector autoregression (VAR) model with Granger causality tests and impulse-response functions. Results: ICMS shocks temporarily increased the exchange rate and imports but had little or no effect on GDP (proxied by electricity consumption), interest rates, exports, inflation, state revenue, and, most notably, employment. Over the period, industry and import-related activities together received 74% of projected tax incentives, while accounting for only 32% and 11% of formal jobs, respectively. Conclusions: the findings challenge Keynesian expectations of broad-based stimulus and align with neoclassical and public-choice critiques, highlighting the inefficiency, limited employment impact, and rent-seeking nature of such tax policies.
Downloads
Article Details
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
Abreu, T. F. R., & Lima, E. C. R. (2022). Multiplicadores fiscais no Brasil identificados com restrições de sinais e de zeros. Nova Economia, 32(3), 647–685. https://doi.org/10.1590/0103-6351/6934
Afonso, J. R. R., Ferreira, S. G., & Varsano, R. (2002). Fiscal competition: A bird’s eye view. Discussion Text n. 887. IPEA.
Alves, R. S., Rocha, F. F., & Gobetti, S. W. (2019). Multiplicadores fiscais dependentes do ciclo econômico: O que é possível dizer para o Brasil? Estudos Econômicos, 49(4), 635-660. https://doi.org/10.1590/0101-41614941rfs
Ameyaw, B., Oppong, A., Abruquah, L. A., & Ashalley, E. (2017). Causality nexus of electricity consumption and economic growth: An empirical evidence from Ghana. Open Journal of Business and Management, 5, 1–10. https://doi.org/10.4236/ojbm.2017.51001
Attílio, L. A. (2022). Estudo da política fiscal do Brasil: Análise empírica com o GVAR (1980–2019). Revista Brasileira de Economia, 76(4), 467–489. https://doi.org/10.5935/0034-7140.20220020
Auerbach, A. J., & Gorodnichenko, Y. (2012). Measuring the output responses to fiscal policy. American Economic Journal: Economic Policy, 4(2), 1–27. https://www.aeaweb.org/articles?id=10.1257/pol.4.2.1
Bank, A. (2011). Effects of discretionary fiscal policy: New empirical evidence for Germany. Working Paper n. 470. Leibniz University Hannover, Faculty of Economics.
Barros, G. S., N., & Correia, F. M. (2019). Fiscal multipliers in Brazil: A sensitivity analysis on the structural identification procedure. Modern Economy, 10, 2175-2200. https://doi.org/10.4236/me.2019.1010137
Bay, A. G. N. M. (2018). Energy consumption and economic growth nexus in Mozambique: 1975-2016. American Journal of Energy Research, 6(1), 19–22. https://doi.org/10.12691/ajer-6-1-3
Blanchard, O., & Perotti, R. (2002). An empirical characterization of the dynamic effects of changes in government spending and taxes on output. The Quarterly Journal of Economics, 117(4), 1329–1368. https://www.jstor.org/stable/4132480
Bozdogan, H. (1987). Model selection and Akaike’s Information Criterion (AIC): The general theory and its analytical extensions. Psychometrika, 52(3), 345–370. https://doi.org/10.1007/BF02294361
Brennan, G., & Buchanan, J. M. (1980). The power to tax: Analytical foundations of a fiscal constitution. Cambridge University Press.
Brueckner, J. K. (2000). Fiscal decentralization in developing countries: The effects of local government behavior. World Development, Annals of Economics and Finance, 1(1), 1–18. https://www.files.ethz.ch/isn/45958/2.pdf
Buchanan, J. M. (1975). Public finance and public choice. National Tax Journal, 28(4), 383–394. https://www.jstor.org/stable/41863132
Bueno, R. L. S. (2022). Econometria de séries temporais. Cengage Learning.
Busato, M. I., & Martins, N. M. (2022). Multiplicadores fiscais no Brasil: Entre consensos e dissensos. Texto para discussão (5), Cátedra Celso Furtado. Universidade Federal do Rio de Janeiro.
Caldara, D., & Kamps, C. (2017). The analytics of SVARs: A unified framework to measure fiscal multipliers. Review of Economic Studies, 84(3), 1015–1040. https://doi.org/10.1093/restud/rdx030
Campos, R. H., Ferreira, R. T., & Kloeckner, R. (2015). Vertical tax competition in Brazil: Empirical evidence for ICMS and IPI in the period 1995–2009. Economia, 16(1), 111–127. https://doi.org/10.1016/j.econ.2015.03.004
Carvalho, H. C., Afonso, A., & Mazzon, J. A. (2023). Tax compliance in the wild: Critical review of nudging and proposition of an integrative framework. BAR-Brazilian Administration Review, 20(1), e220040. https://doi.org/10.1590/1807-7692bar2023220040
Castilho, F. R., & Silveira, R. F. (2009). Brazilian states tax war explained by the property right theories of law and economics - fake redistributive policies leading to underdevelopment. Law & Business Review of the Americas, 15(2), 353-376. https://scholar.smu.edu/cgi/viewcontent.cgi?article=1404&context=lbra
Cavalcanti, M. A. F. H., & Silva, N. F. C. (2010). Dívida pública, política fiscal e nível de atividade: uma abordagem VAR para o Brasil no período 1995-2008. Economia Aplicada, 14(4), 391-418. https://doi.org/10.1590/S1413-80502010000400007
Cloyne, J. (2013). Discretionary tax changes and the macroeconomy: New narrative evidence from the United Kingdom. American Economic Review, 103(4), 1507–1528. Https://doi.org/10.1257/aer.103.4.1507
Dornbush, R., Fisher, S., & Startz, R. (2011). Macroeconomics. McGraw-Hill.
Emenda Constitucional n. 132 (2023). Emenda Constitucional, n. 132, de 20 de dezembro de 2023. Altera o Sistema Tributário Nacional. https://www.planalto.gov.br/ccivil_03/constituicao/emendas/emc/emc132.htm
Enders, W. (1995). Applied Econometric Time Series. John Wiley & Son.
Erber, F. S. (2011). As convenções de desenvolvimento no governo Lula: Um ensaio de economia política. Revista de Economia Política, 31(1), 31-55. https://doi.org/10.1590/S0101-31572011000100002
Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424-438. https://doi.org/10.2307/1912791
Hayek, F. A. (1990). O Caminho da Servidão. Instituto Liberal.
Hebous, S. (2011). The effects of discretionary fiscal policy on macroeconomy aggregates: A reappraisal. Journal of Economic Surveys, 25(4), 674–707. https://doi.org/10.1111/j.1467-6419.2010.00659.x
Ilzetzki, E. (2011). Fiscal policy and debt dynamics in developing countries. Policy Research Working Paper 5666. The World Bank.
Keynes, J. M. (1935). The General Theory of Employment, Interest, and Money. International Relations and Security Network. https://www.files.ethz.ch/isn/125515/1366_keynestheoryofemployment.pdf
Koop, G., & Korobilis, D. (2010). Bayesian multivariate time series methods for empirical macroeconomics. Foundations and Trends in Econometrics, 3(4), 267–358. https://dx.doi.org/10.2139/ssrn.1514412
Kraft, J., & Kraft, A. (1978). On the relationship between energy and GNP. The Journal of Energy and Development, 3(2), 401-403. https://www.jstor.org/stable/24806805
Lei n. 18.170, de 27 de julho de 2021. (2021). Lei Nº 18.170, de 27 de julho de 2021. Dispõe sobre as diretrizes orçamentárias para o exercício financeiro de 2022 e estabelece outras providências. https://leis.alesc.sc.gov.br/ato-normativo/21006
Lei Complementar, n. 24, de 7 de janeiro de 1975. (1975). Lei Complementar, n. 24, de 7 de janeiro de 1975. Dispõe sobre os convênios para a concessão de isenções do imposto sobre operações relativas à circulação de mercadorias, e dá outras providências. https://www.planalto.gov.br/ccivil_03/leis/lcp/lcp24.htm
Lei Complementar n. 160, de 7 de agosto de 2017. (2017). Lei Complementar, n. 160, de 7 de agosto de 2017. Dispõe sobre convênio que permite aos Estados e ao Distrito Federal deliberar sobre a remissão dos créditos tributários, constituídos ou não, decorrentes das isenções, dos incentivos e dos benefícios fiscais ou financeiro-fiscais instituídos em desacordo com o disposto na alínea “g” do inciso XII do § 2o do art. 155 da Constituição Federal e a reinstituição das respectivas isenções, incentivos e benefícios fiscais ou financeiro-fiscais; e altera a Lei no 12.973, de 13 de maio de 2014. https://www.planalto.gov.br/ccivil_03/leis/lcp/lcp160.htm
Lei Complementar n. 214, de 16 de janeiro de 2025. (2025). Lei Complementae n. 214, de 16 de Janeiro de 2025. Institui o Imposto sobre Bens e Serviços (IBS), a Contribuição Social sobre Bens e Serviços (CBS) e o Imposto Seletivo (IS); cria o Comitê Gestor do IBS e altera a legislação tributária. https://www.planalto.gov.br/ccivil_03/leis/lcp/lcp214.htm
Litterman, R. B. (1986). Forecasting with Bayesian vector autoregressions – five years of experience. Journal of Business & Economic Statistics, 4(1), 25–38. https://doi.org/10.1080/07350015.1986.10509491
Lütkepohl, H. (1993). Introduction to Multiple Time Series Analysis. Springer-Verlag.
Maindonald, J. H. (2007). Least squares computations based on the Cholesky decomposition of the correlation matrix. Journal of Statistical Computation and Simulation. https://doi.org/10.1080/00949657708810155
Matheson, T., & Pereira, J. (2016). Fiscal multipliers for Brazil. International Monetary Fund. Working Paper n. 79.
Mattos, E., Rocha, F., & Maluf, J., Jr. (2017). Fiscal strategic interaction in Brazil: An analysis of Fiscal War of Ports. Revista Brasileira de Economia, 71(2), 177–193. https://doi.org/10.5935/0034-7140.20170009
Mello, L. (2008). The brazilian “tax war”: The case of value-added tax competition among the states. Public Finance Review, 36(2), 169–193. https://doi.org/10.1177/1091142107299252
Mertens, K., & Ravh, M. O. (2014). A reconciliation of SVAR and narrative estimates of tax multiplier. Journal of Monetary Economics, 68 (Supplement), S1–S19. https://doi.org/10.1016/j.jmoneco.2013.04.004
Mountford, A., & Uhlig, H. (2009). What are the effects of fiscal policy shocks? Journal of Applied Econometrics, 24(6), 960–992. https://doi.org/10.1002/jae.1079
Narayan, P. K., Narayan, S., & Prasad, A. (2008). A structural VAR analysis of electricity consumption and real GDP: Evidence from the G7 countries. Energy Policy, 36(7), 2765–2769. https://doi.org/10.1016/j.enpol.2008.02.027
Organisation for Economic Co-operation and Development (OECD). (2018). Subnational public-private partnerships: Meeting infrastructure challenges. OECD. https://doi.org/10.1787/9789264304864-en
Organisation for Economic Co-operation and Development (OECD). (2023). Tax policy reforms 2023: OECD and selected partner economies. OECD. https://doi.org/10.1787/d8bc45d9-en
Parys, S. V., & James, S. (2010). The effectiveness of tax incentives in attracting investment: panel data evidence from the CFA Franc zone. International Tax and Public Finance, 17, 400–429. https://doi.org/10.1007/s10797-010-9140-1
Peres, M. A. F., & Ellery, R. G., Jr. (2009). Efeitos dinâmicos dos choques fiscais do governo central no PIB do Brasil. Pesquisa e planejamento econômico, 39(2), 159–206. http://repositorio.ipea.gov.br/handle/11058/5116
Perotti, R. (2004). Estimating the effects of fiscal policy in OECD countries. IGIER Working Paper n. 276.
Pontes, P. A. (2011). Três ensaios sobre guerra fiscal e incentivos estaduais para industrialização (Tese de Doutoramento). Escola de Administração de Empresas de São Paulo, Fundação Getúlio Vargas, Brasil.
Ramey, V. A., & Shapiro, M. D. (1998). Costly capital reallocation and the effects of government spending. Carnegie-Rochester Conference Series on Public Policy, 48(1), 145–104. https://doi.org/10.1016/S0167-2231(98)00020-7
Ramey, V. A. (2019). Ten years after the financial crisis: What have we learned from the renaissance in fiscal research? Journal of Economic Perspectives, 33(2), 89–114. https://doi.org/10.1257/jep.33.2.89
Romer, C. D., & Romer, D. H. (2010). The macroeconomic effects of tax changes: Estimates based on a new measure of fiscal shocks. American Economic Review, 100(3), 763–80. https://doi.org/10.1257/aer.100.3.763
Simionescu, M., & Albu, L.–L. (2016). The impact of standard value added tax on economic growth in CEE-5 countries: Econometric analysis and simulations. Technological and Economic Development of Economy, 22(6), 850–866. https://doi.org/10.3846/20294913.2016.1244710
Sims, C. A. (1993). A nine variable probabilistic macroeconomic forecasting model. In J. H. Stock, & M. W. Watson (Eds.) Business cycles, indicators, and forecasting (pp. 179–214). University of Chicago Press.
Slemrod, J. (1990). Optimal taxation and optimal tax systems. Journal of Economic Perspectives, 4(1), 157–178. https://doi.org/10.1257/jep.4.1.157
Stock, J. H., & Watson, M. W. (2001). Vector Autoregressions. Journal of Economic Perspectives, 15(4), 101–115. https://doi.org/10.1257/jep.15.4.101
Surrey, S. S. (1970). Tax incentives as a device for implementing government policy: A comparison with direct government expenditures. Harvard Law Review, 83(4), 705-738. https://doi.org/10.2307/1339837
Taylor, J. B. (1995). The monetary transmission mechanism: An empirical framework. Journal of Economic Perspectives, 9(4), 11–26. https://doi.org/10.1257/jep.9.4.11
Tiebout, C. M. (1956). A pure theory of local expenditures. Journal of Political Economy, 64(5), 416–424. http://www.jstor.org/stable/1826343
Tomazzia, E. C., & Meurer, R. (2009). O mecanismo de transmissão da política no Brasil: Uma análise em VAR por setor industrial. Economia Aplicada, 13(4), 371–398. https://doi.org/10.1590/S1413-80502009000400002
Wilson, J. D. (1999). Theories of tax competition. National Tax Journal, 52(2), 269–304. https://www.journals.uchicago.edu/doi/abs/10.1086/NTJ41789394
Zang, C., Zhou, K., Yang, S., & Shao, Z. (2017). On electricity consumption and economic growth in China. Renewable and Sustainable Energy Reviews, 76, 353–368. https://doi.org/10.1016/j.rser.2017.03.071
Zodrow, G. R., & Mieszkowski, P. (1986). Pigou, Tiebout, property taxation, and the underprovision of local public goods. Journal of Urban Economics, 19(3), 356–370. https://doi.org/10.1016/0094-1190(86)90048-3